United States Senator Bill Hagerty (R-TN), a member of the Senate Banking Committee, yesterday joined Sound ON on Bloomberg Radioto discuss the collapse of Silicon Valley Bank. Click here to listen to the full interview.
Partial Transcript
Hagerty on what he learned from a briefing by the Treasury Department and FDIC: “I just got off the phone with officials from Treasury [Department] and the [Federal Deposit Insurance Corporation]. I must tell you, I’m very disappointed that we’re not talking about who the acquirer is and who’s going to take care of the borrowers of this bank. The auction process over the weekend failed. During the weekend they actually did receive a bid. I’d urged strongly that they should take the most competitive offer and have a bank in place today when the market opens. Indeed, they allowed the bid to fail, and they’ve got now a situation where taxpayers are not on the hook for this, but every bank in America is going to get an increased fee based on the amount of divots that [have] to be covered. And last time I checked, banks in America pay taxes too. So, this is something that we’ve got to navigate through. I really think that there’s some serious questions here, though.”
Hagerty on the mismanagement of Silicon Valley Bank: “Clearly, Silicon Valley Bank was mismanaged. You know, they had a very well-connected CEO who was on the board of the San Francisco [Federal Reserve]. I don’t think enough people have asked, ‘Where was the San Francisco Fed in terms of its regulatory oversight? Were the regulatory, you know, agencies asleep at the wheel here? Was it a management team that was more focused on ESG and cashing out stock than they were in managing their bank competently?’ There are many, many questions to be answered here, Joe […] I would say that if you talk about who’s going to bear the brunt of this, it’s a matter of semantics. When they say there’ll be increased fees to banks throughout the system, those banks, again, will have to pay taxes that [are] coming out of those fees coming out of their cost structure. Those fees will likely be passed along to Tennessee and to national taxpayers.”
Hagerty on a potential buyout from a larger bank: “When I spoke with FDIC officials, they said that their intention was to put a process back together again, and they had a bid. They informed me that they did have a bid for the bank over the weekend. They declined a bid evidently, and they want to come back and re-attack this. I think it’s going to be very, very difficult, though. And I tried to remind them that there many, many borrowers here, small startup firms that are now without a banking relationship that has any certainty. This is going to create a knock-on effect in our high-tech sector. I hope that the efforts that they’re making will certainly calm the deposit base in America. We’ve been very concerned about the impact of this on regional banks and not to allow this to precipitate a massive move to the largest banks in America for safety. I hope that those communications work and that will sort itself out. But I am still very concerned about the situation that we’ve left ourselves in, specifically with Silicon Valley Bank, its borrowers, and the implications going forward.”
Hagerty on Democrats attempting to blame the collapse on the Trump Administration: “Silicon Valley Bank back in 2019 was a $70 billion bank. I understand the cries that have been lashed out here in the past couple of days trying to blame this on the previous Administration, but nothing—and they’re talking about S.2155—nothing under that law would’ve relieved the regulatory requirements on SVB. They would not have been included in any of this. Again, this is a distraction. Really, the question is: What was management doing, and what were the regulators doing that allowed them to miss this?”
Hagerty on calls for more bank regulation: “No, my concern right now is just making certain that regulators are looking at what they should be. And we have a situation here where, you know, we’ve had a very rapid increase in interest rates. That’s caused a number of the securities that are in the ‘held-to-maturity’ bucket in banks’ balance sheets to go underwater. And what should have been happening was these banks should have been managing their interest rate risk. Evidently, Silicon Valley Bank did not. They weren’t anticipating liquidity requirements. When you have a customer base like Silicon Valley Bank’s—a lot of startup companies that are running with no revenues that are burning cash—those demands are bound to be high. Again, you have mismanagement here as a culprit and a lack of oversight, in my view […] I’m certainly going to be taking a cold hard look at all of this and [going to be] looking at it anew. I don’t think any regulation is perfect. There’s always room for improvement. But it is amazing to me where you have an Administration that always looks to put more regulations as the answer to everything when actually it gets down to management competence and regulatory competence, I think, at the very core of this failure.”
Hagerty on Silicon Valley Bank’s social initiatives: “On the website, they tout a $5 billion investment in green projects. The distraction from what’s doing best for its shareholders, what’s doing best for its depositors and customers while trying to, you know, market itself as a green bank, that sort of thing. I view this as a distraction. Banks should be focused on the core business, not on social justice. And [in] other areas, the depositors and shareholders can do that with their own money. I don’t think it’s up to these bank management teams to do this, and SVB was definitely engaged in that arena.”
Hagerty on the FDIC insurance limit: “Joe, I think the biggest question coming out of all of this—and this is one that we’ve got to look at very hard—the actions taken over the weekend suggest that perhaps there’s no such thing as an uninsured deposit in America. You have a bank here with close to 90 percent of its depositors, or its deposits, in the uninsured category, yet they’re all going to be taken care of. So, I think the American public looking at this is going to ask some very basic questions regarding fairness. And I think that we’ve put ourselves in a very challenging environment right now. SVB [is] different from banks in Tennessee. We don’t have this percentage of uninsured deposits in my home state. But here you had a lot of highly wealthy depositors here, different sorts of businesses maintaining large cash balances. It is a unique bank in many respects, but this has raised a specter of really whether there is any such thing as an uninsured deposit in America these days […] It’s hard to say what the right [insurance limit] number is right now. There’s been so much inflation in the marketplace since that number was set, but I felt for many years that that was certainly an adequate number for the everyday depositor. Certainly, that would be the case in my home state. When you’re talking about a very different type of deposit base, though, that you had with SVB, clearly, it’s just a different animal altogether.”
Hagerty on the potential of more banks failing: “Well, you know, Signature [Bank] has been taken over today. I think there’s a great deal of consternation about First Republic [Bank] based off trading. I understand trading [is] back up again on that bank. I really hope that we’ll have clear messaging coming out of Washington today that helps calm the markets and, you know, lets depositors understand exactly what’s happening here. The last thing we need to do is see a precipitous run based on misinformation or lack of information. So, I hope we have good communications coming out of the Treasury. I know they’re working on that. Hopefully, that will help calm the markets. But there was no doubt [when] I spoke with Chair Powell last night about this. Today’s going to be choppy as the market digests this information.”
###